Westpac predicts long-awaited rate cuts after harder economic times to come

One of the big four banks has explained their new prediction on when interest rates will drop - and delivered a warning to RBA boss Phil Lowe.

Westpac’s chief economist has explained the grim economic outlook behind the major bank’s prediction on rate cuts, and delivered a warning to RBA boss Philip Lowe.

The big bank published a weekly report on Monday that forecast seven interest rate cuts in 2024 and 2025 but not before rates soar to 4.1 per cent in just four months.

Westpac chief economist Bill Evans said the economy will be “stagnating” by the September quarter of this year.

Inflation will be around 4 per cent by the end of the year and will fall a percentage point during 2024, according to their forecasts.

Westpac has predicted seven rate cuts will come by 2024 and 2025. Picture: NCA NewsWire / David Geraghty

The major bank also expects the unemployment rate will rise from 3.5 per cent to 5 per cent by the end of 2025.

Mr Evans said this would trigger the Reserve Bank to begin cutting rates in the March quarter of next year.

However, he did warn that the bank shouldn’t wait too long to cut the rates.

“You shouldn't be waiting until it’s all the way back within the band if you are looking at an economy that is basically flat and unemployment is rising,” he said.

“I think they have to be somewhat pre-emptive but expecting it to happen this year is too soon.”

The rate rises would be the highest in more than a decade if Westpac’s forecast rises in March, April and May come to pass.

The bank does not envisage that inflation will reach the 2-3 per cent target until June 2025.

The recent report comes as a surprise to Westpac customers after the bank insisted the cash rate would peak at 3.85 per cent in May this year.

Since May last year, borrowers have been hit with nine consecutive rate rises.

The RBA has aggressively raised interest rates in a bid to tame runaway inflation, which reached 7.8 per cent in December.

It was a peak not seen since 1990 in Australia.